George Shultz leads a group preparing to propose a federal tax on carbon to slash U.S. greenhouse gas emissions and oil consumption, a seemingly unlikely policy from a Republican Party statesman.

By Mark Golden and Mark Shwartz

George Shultz was an economist in the Eisenhower administration, as well as secretary of the Treasury and Labor, and director of the Office of Management and Budget in the Nixon administration. Under President Ronald Reagan, he was secretary of state for almost seven years. Despite the reluctance of his fellow Republicans to embrace action on global warming, Shultz is confident that when the time is right conservatives will support a carbon tax, for a number of reasons.

For several years, Shultz has worked intensely on energy policy. In 2010 he and entrepreneur Tom Steyer, a Democrat, led the successful campaign to defeat Proposition 23, a California ballot initiative to suspend the state's ambitious law to curb greenhouse gases. In addition to leading the Hoover Institution's Shultz-Stephenson Task Force on Energy Policy, Shultz chairs the advisory boards of two energy research umbrella organizations: Stanford's Precourt Institute for Energy and the Massachusetts Institute of Technology's Energy Initiative.

With a car that's powered by electricity generated from solar
panels on his Stanford home, former Secretary of State
George Shultz says he's 'driving on sunshine.'

Why did you get so involved in energy?

I've been worried about our energy problem for a long time. President Eisenhower said that if we imported more than 20 percent of the oil we use, we were asking for trouble with national security. By 1973, I'm secretary of the Treasury and we have the Arab oil embargo. They seek to deny us oil in order to change our policies. I thought then, you know, President Eisenhower knew something.

At that point people were coming in with ideas on how to reduce oil imports, and some research started. Then the price of oil went down and everything stopped. That's happened a few times since then. We've been on this roller coaster ride. This time it's important to make it different. I'm really impressed by the research that is being accomplished here at Stanford and MIT and elsewhere, and by the efforts of companies that are attempting to do something about it

You recently traded in your hybrid car for an all-electric one, which is powered by solar panels on your roof. Can you talk about that a little?

If you speak out about something, you've got to walk the talk, you've got to do it yourself. The biggest consumer of oil is the automobile, so I've been interested in driving a car that is more efficient. My solar panels have long since paid for themselves by the savings in electricity costs. I have my electric car running on electricity from the sun, which costs me nothing and there is plenty of it here. So, I'm driving on sunshine. Take that, Ahmadinejad!

What we do today is going to have a big impact on the future. I have three, soon to be four, great-grandchildren. I've got to do what I can to see that they have a decent world. And if we let this go on and on the way it's going right now, they're not going to have one. Getting control of carbon is right at the heart of the problem.

How would the carbon tax your task force is developing work?

We have to have a system where all forms of energy bear their full costs. For some, their costs are the costs of producing the energy, but many other forms of energy produce side effects, like pollution, that are a cost of society. The producers don't bear that cost, society does. There has to be a way to level the playing field and cause those forms of energy to bear their true costs. That means putting a price on carbon.

We've studied a variety of ways to do that, and to me the most appealing way is a revenue-neutral carbon tax. That is, you distribute all the revenue from the carbon tax in some fashion back to taxpayers, so there is no fiscal drag on the economy. British Columbia has a revenue-neutral carbon tax. They started low and increased the tax over five years to a much higher level, so people could adjust. The revenue is distributed mostly to individuals, so it's popular.

To enact this, how would you get enough support from Republicans, who almost unanimously have opposed taking action on climate change?

Historically, Republicans have often protected the environment. President Nixon created the Environmental Protection Agency. We dealt with the ozone layer under President Reagan and with acid rain under the first President Bush, both with bipartisan support. People making careers out of disagreeing with each other is a very recent phenomenon.

There are three major issues raised in the energy area. One is national security. We know that we don't want to be vulnerable to sources of supply that are uncertain or to send billions of dollars to regimes that are not our friends. Then there's the economy. Every spike in the price of oil has put our economy in a recession. We want to have more diverse energy resources so our economy won't be so vulnerable to the oil market.

Then there's the environment, which has many aspects. One of these is the air you breath, which Tom Steyer and I emphasized in the "No on 23" campaign. Another is that the globe is warming, which is not a matter of opinion, but a matter of fact. The arctic is melting. If you could bring together the constituencies concerned with national security, the economy and the environment – both local and global – that would be a potent coalition.

Your task force has not pushed the policy much this year, in part because it's an election year. Do you think 2013 will be the time to promote the idea?

You never know when an opportunity is going to come. Sometimes it comes when you're not ready, and it goes away and you haven't accomplished anything. The thing to do is to be ready. We're studying this topic carefully: how to put it into effect, how to make it revenue neutral, what we can learn from the case study. So, we will be ready.

Just when the opportunity comes you don't know, but it will come. A lot of people seem to be scoffing at the idea of global warming, but reality will catch up with them.

What other topics is the task force working on?

Quite a variety. We're looking at the subject of distributed energy, which is creating energy closer to where you use it. I think that's going to become more and more important. You know it's important for the military when you see pictures of fuel trucks being blown up. And we are working with the military and others on boosting energy efficiency.

We are studying the regulatory process, which is a maze of things not at all oriented toward giving people the incentives to do the things we would like them to do, so we are trying to figure out how to do a better job of regulating. Other problems we are looking at include how to deal with spent nuclear fuel internationally, where energy and national security again meet, and how to sustain support for research. We also keep track of technological breakthroughs so we know what policy goals are feasible.

Well, your commitment and optimism are impressive.

You've got to be optimistic. I've had enough jobs in government and elsewhere to know that if you're not optimistic, you're not going to get anywhere. If you get the material out there in front of everybody on this issue, it's a no-brainer. It's obvious we must act.

This article first ran in the Stanford Report.